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The Arrested Development case study: Say you’re Mitchell Hurwitz, what would you do?

The TV series called Arrested Development was just cancelled by Fox.

I think this real life situation would make a dandy case study. (And there is, to my knowledge, nothing in the Harvard Business School case study archive on long tail markets.)

If this were a case study, the first paragraph would read something like this:

Series creator Mitch Hurwitz was sitting at his desk at The Hurwitz Company. The office was quiet, even a little mournful. Mitch’s baby, Arrested Development, had just been cancelled.

Five Emmys and the 2004 award for "best comedy series" had not been enough to protect it. As Fox executive Peter Liguori put it, ”The fan base is unquestionably one of the most loyal in TV – it’s just too small." The numbers this season had been disappointing, around 4.3 million viewers a week.

(if this were a real case study, we would do a quick review of economics of TV: how many viewers are required to sustain a series, what it costs to mount one, what the break even point is, how decisions are made, famous exceptions, etc.We would also note how the audience for AD took shape. Did the numbers build slowly? Did early adopters convert to loyalists? Was there a good deal of "churn" is fans came and went?)

In the old days, Mitch knew, cancellation was cancellation. The networks were god. There were no stays of executive. When the network cancelled a show, it stayed cancelled. But because Mitch was familiar with the writings of Chris Anderson at Wired Magazine and because he was a man deeply acquainted with the trends of his industry, he knew there was still hope.

(if this were a case study, we would talk about Mitch’s career in television, what he had come to know about the industry, how things had changed as he came up, etc. There is a good interview at the AV Club (link below) from which we could steal shamelessly. We would also talk about how network TV had changed, how cable plays had emerged, the role of HBO in the reinvention of cable, how even small cable outlets were now producing, and how the economics of the industry had changed as a result. This would also be a place to talk about Anderson’s small tail theory. We would also talk about new distribution options opened up by DVD sales, video iPod, Internet access, and consumers who "prepay" for access to TV shows as they do in the world of the arts [the opera subscription] and in the world of marketing research.] )

(Here are the four scenarios which smart students would extract from the welter of details with which we have filled the case.)

Scenario 1: "revenge of the long tail."

Fox, bless them, gave AD it’s run. The numbers are in and the test is over. AD has found its audience: 4.3 million viewers is it. Mitch should throw in his cards. He might want to take AD to cable, but a guy with his talent and track record would do better to start again. AD gives him lots of profile and credibility. People will return his phone calls. Dump this baby. Go again.

Scenario 2: Retreat to cable

With the advent of long tail TV (LTTV?), there is a lingering hope for AD: that it takes refuge with a lesser network. There are some networks for whom 4.3 million viewers is just fine, thank you very much. On TNT, an only slightly larger number made The Closer one of the biggest hits in cable history.

The students who take this position would have to defend themselves against the accusation that there is not enough money in cable to sustain a show like AD and if some of its stars left, the show would close in any case.

Scenario 3: Return to glory

This option says, take refuge with USA network for a couple of years, let the audience build, and return to Fox (and the big money). Mitch is on record as saying, "why should we assume that when you try something different it will immediately be accepted?” This suggests that he believes that AD is a little ahead of its time. He might wish to say in play until the world catches up to him.

Scenario 4: Move to new channels and new revenue sources

[this scenario was added to the post thanks to the comments from Hey, Terry, Ken King, Ginna Dowler, and Peter McBurney. Please see their comments below. (Would these authors please let me know their full names so that I can give more complete acknowledgement?)]

Hurwitz can abandon TV distribution altogether. The advent of the DVD market gives him both a new way to get to market and a new source of funding. (See Ginna on Sternberg on Whedon’s Firefly options, below. ) There is also a internet distribution possibility, likely funded by a subscription model of some kind.

This option leaves open the "return to network glory" possibility, but I am guessing that Scenario 4 would give Hurwitz more creative freedom and better returns. It was also give him a heroic standing in the small tail markets that remain, in the case of TV and Hollywood, still pretty "fat middle."

And the winner is…

Each of these positions is defensible and every good case study should allow the class to break into camps and for controversy to ensue. But every case has, in the heart of the writer and the instructor, a right answer. And this is a section from the "teaching note" that is send to the instructor.

How do we decide which scenario? The shape of the numbers should tell us. When Liguori says, ”The fan base is unquestionably one of the most loyal in TV," this is a bad sign. This suggests that we have got everyone aboard who is coming aboard. If this is what the numbers tell us, advantage goes to students who support Scenario 1.

On the other hand, if the enthusiasm is distributed, that’s more promising. They should show degrees of enthusiasm and some evidence of conversion: that it takes awhile for newcomers to become fans, for fans to become loyalists and for loyalists to become devotees. We should see word of mouth support and the statistical evidence that WOM is indeed taking place.

Of course, there is a more fundamental problem here and that is whether news of AD actually found its way to all or most of the would-be viewers. Daniel Drezner says that news reached him belatedly…and this suggests that marketing has something to answer for. Drezner is after all pretty well informed about popular culture. If we determine that news was badly distributed, then we go with Scenario 2 and/or 3.

So the "right answer" turns on whether we think the AD audience is a long tail market, or a long tail market struggling to become a fat middle. So the "right answer" turns on what numbers we supply (or what they can be made to say). Do they show an adoption pattern for AD that is thickly packed or more stretched out? Does this flock cluster or does it attenuate?

Will this post become a case study?

If this post suddenly comes down, it is on its way to becoming a case study.

17 thoughts on “The Arrested Development case study: Say you’re Mitchell Hurwitz, what would you do?”

interesting, and this mirrors the firefly/serenity case also. I’d suggest a 4th option that I’ve seen: dvd/internet series. People will pay a significant amount of money per episode/season, and you can pre-sell these dvds/downloads to a large fraction of the arrested development audience.

I’d also venture that these kinds of asynchronous fan leveraging models are a good way of dealing with TIVO and the 24/7 nature of jobs for the young professional class. I know that except for a stretch of unemployment, the only tv I can actually watch is CNBC, movie network (canada’s HBO), whatever’s available on demand, and maybe (maybe) the west coast feed of major networks. Young professionals are dealing with multiple time zones, flat hierarchies, and massively productivity enhancing inventions that make it possible and necessary for us to work insane hours. Ok well I do, but the rest of my cohort at least is working hours that don’t fit in primetime as well as a social life.

Love your blog, which I just found, coming from a WSJ article on minus8 vinegar and an attempt to get behind the mystery of its origins (I have connections into the Niagara wine industry and was interested in who was getting all the big press…). You’re doing great work minutes from my house.

Hey, thanks for those illuminating comments and kind words. Yes, time shifting by DVD and Tivo and a new segment that cannot see things in real time even if they wanted to. Why didn’t I think of that? As usual, it would be interesting to know what these numbers really look like. As you say, at the extreme, Hurwitz could pre-sell the season to its final consumers. They buy a DVD ticket. He sends them the finished season when its, er, finished. A series by subscription, a little like the opera. So where is your house? Best, Grant

As a recovering strategy prof, industry power structures interest me the most in this case. Networks seem to still have power now, but now that Arrested Development has built a decent customer base, they’ve got an asset that really doesn’t need Fox, right? If the fans are “true fans,” they’ll follow them, right? And if they can come to another distribution channel (don’t care which one) with 4.3 million customers right off the bat, it would seem to me they would be in a pretty decent position.

When I do teach, I spend a ton of time on movies, video games, and other cultural products because you can really isolate the effects of uniqueness on value chains.

This would make a fabulous case study. I’d flesh it out with some historical comparisons. What other shows faced the same issues? What did they do? There’s new technology now. What impact will that have? Would it be possible to go from weekly series on a network to weekly download for iPod with no broadcast? Maybe not in ’05, but maybe in ’07? What if we made all the highest paid people owners instead of salaried? Would that help?

Terry, thanks, I woke up last night thinking, “small tail?” it’s “long tail!” It was one of those posts that was tough to land, I wasn’t paying close attention to content. And thanks for your very interesting thoughts on the case. Maybe we should write it. Let me see if I can find a stategic partner. Best, Grant

“All of which leads to an enticing possibility: Let’s say that Joss Whedon, creator of Firefly, wanted to bring the series back to air. (Though “back to air” is a TV phrase now as anachronistically quaint as “switching the dial.”) Let’s say he found a million Firefly fans online—and, trust me, they’re not hiding—who were willing to pay, say, $39.99 each for a sixteen-episode season of Firefly. (Not an unreasonable price, given how many people pay about that amount for full seasons on DVD.) Suddenly, Joss Whedon’s got roughly $40 million to play with—and he doesn’t need a network. Or a time slot. Or advertisers. He can beam the damn shows right to your computer if he wants to. There’s even a mini-precedent for this: The online phenomenon of “ransom games,” in which a board-game developer sets a price (usually something minuscule, like $1,000), then, once he’s received that amount in pledges from strangers, creates the game and releases it for free.”

With the advent of DVRs, video-on-demand, video iPods, and broadband internet, the broadcast model may soon be entirely dead. I like the idea of “pledging” money in advance to get a series made.

Ginna — the business model you describe has been around for decades in the market research industry, where it’s known as a “multi-client study”. A market research firm identifies a need for market information (usually quantitative market survey data, but not necessarily), and then touts the idea to all the companies who may have an interest in seeing it. If the data was attitudes of cellphone users, then the companies interested would be cellphone network operators, manufacturers, other network operators, retailers, even government regulators. When enough companies commit to buy the study, the market research firm then goes ahead with it.

Why would a company pre-commit to buy such a study? Well, usually there is a discount for up-front commitment. Also, if a survey is involved, the early buyers may get to influence its content or structure, being able to place their own questions in it, for example. The same ideas could apply to pre-paid TV content.

Many viewers already “pre-subscribe” to shows. Pay-per-view subscriptions come to mind. The Vancouver Canucks, for example, promised fans in the last season (i.e. a lifetime ago) that they would ensure that every Canucks game had TV coverage through PPV if a certain season subscription level was met. (Can’t find a link, sorry.) So this year, every single game will be televised. The Canucks cover their costs in advance, and everybody wins.

However, outside such specialty programming, I don’t believe that the consumer world is ready for demand TV, or pledging. Give it another 5 or 6 years.

Right now the problem would be finding the audience. With the broadcast model, at least some percentage of viewers found AD by watching Fox at other times. Maybe they saw an ad during a sports program, or Prison Break, or some other show. This advertising so far can’t be duplicated for general TV programming.

The other problem with demand TV is that it requires the viewer to take action. While many already-loyal fans would seek out AD in other forms, it would take a lot of advertising to push the show to other viewers. Right now, it’s pretty easy to watch a new show when it is essentially “free” – that is, you’re already paying for cable, and all you have to do is change the channel on your remote.

I would pay a hell of a lot more than 40 bucks for another season of Firefly . . . The question I have is, how much does it cost to make a full season of a show like AD? Or Firefly? I would assume a LOT more for Firefly, but what percentage of the total cost do the cast represent? I want to see this case study!

Kirk, thanks, this is a really interesting question, how much would we pay for something that is now (after we have paid our cable bill) free. And I guess it makes sense to assume that deep engagement is more likely to open wallets than passing interest, and if this is the case, shows will go for intensive connections rather than please-everybody, extensive ones. And good question, about the costs of a show. This is one of the vexing problems in the study of popular culture. Pam, my wife, recently found an article on 7th Heaven that said the stars were making $100,000. But, in my experience, this kind of info is rare. Maybe there’s a fund of knowledge out there somewhere, (and if so, will somebody please tell me). Best, Grant

Ginna, great point, there is no serendipity opportunity if people are now “watching TV” off network, off cable (as Hey points out). There are of course other ways of reaching them, most of these pretty inexpensive in the “long tail” way of things. And your last point is a great one. Network and cable TV is not just free, it demands only that we figure out a way to turn on the TV and work the remote. A subscription model demands a much more active posture and decision making process. Thanks, Grant

Grant–I confess that up until very recently (read: like last month) I had never seen even one episode of AD. Our mutual friend Darren loves this show so much he got me the first season on DVD, as he thought I was truly missing something great. Natch, after viewing the brilliant extended pilot I found myself utterly addicted. Portia DeRossi is even better on this than she was on Ally McBeal.

So you can imagine my shock to find that this incredible show has been cancelled. Everybody loves Raymond stays on the air for 10 years and AD gets cancelled after 2 seasons?

it is and it isn’t. AD was ahead of it’s time. i had trouble keeping up with fox’s changing schedule during the show’s first two years, but i knew the show was genius and was proven right when i failed to be able to watch it regularly, yet it still won several awards. i was proud. many people are revelling in the enjoyment of the series’ on dvd’s because it IS tv that you can watch when you CAN. duh. listening to people circle this thing like vultures as if there is something scientific to diagnose. didn’t Chappelle’s show dvd score make some of the highest in sales for it’s year? and where does this greed stem from? at this point, i think any of us would be willing to take the risk of “sacrificing the quality” just to have our show back again am i right? why isn’t being in the industry and doing something so brilliant and wonderful enough for anyone in Hollywood?? It’s not like they use all of their money to feed the poor. We’re talking thousand dollar suits, fifty thousand dollar cars, and ten thousand dollar hookers….not thousands of dollars worth of groceries to bring to a village, not fifty thousand dollars to help BUILD a village. SAVE ARRESTED DEVELOPMENT!!!!!!! BRING BACK THE JOY!

I stumbled across your blog while I was in the process of doing some online research. I think everyone who is a fan of a cancelled show feels somewhat betrayed; all that emotional investment, and then you never even get to know what happened to the characters you’ve grown to care about!